Left for dead, retail booming in Southwest Florida

The runaway leader in sales activity in Southwest Florida’s commercial real estate market is an industry whose death has been shouted from the mountaintops for more than a decade: retail.

Yes, brick-and-mortar retail. The dinosaur left to the dustbin of history as e-commerce takes over, Amazon overtaking Sears, Etsy surpassing K-Mart.

But as it turns out, people still like shopping in stores.

“In 2021, if you remember, in the height of the pandemic, people were saying: 'Retail is over. No one’s ever going to return to a brick-and-mortar store again. The sector is dying,'” says Justin Thibaut, president and CEO of the LSI Cos., a commercial real estate firm in Fort Myers. “But in 2021 and 2022 this sector has reemerged as one of the hottest.”

Thibaut was speaking at the annual Market Trends of Southwest Florida conference at the Caloosa Sound Convention Center & Amphitheater in Fort Myers. More than 950 people, mostly real estate industry insiders, attended the March 16 event in person and online.

In addition to Thibaut, the evening’s speakers included Randy Thibaut, a land and new home sales and development expert, and Denny Grimes, a residential real estate expert. The three men spoke about the state of the market today — hot and possibly getting hotter — and what’s ahead — be cautious and stay aware of pitfalls.

Justin Thibaut told the audience that commercial sales volume in Southwest Florida in 2021 jumped 87% to $2.17 billion, up from $1.16 billion in 2020. Of that, 55% was sales of retail properties, which nearly doubled in 2021, growing from $634 million in 2020 to $1.1 billion. Retail made up 55% of total sales volume in 2020 as well.

The office sector was second with 26% of total commercial sales volume, up from 21% last year. The office sector jumped from $251 million in sales in 2020 to $548 million.

As for the industrial sector, it made up 19% of the total sales volume with $401 million in sales, up from $277 million in 2020. Despite the growth, its percentage of the total sales volume dropped from 24% last year.

Thibaut says the reason for the $1 billion spike in overall commercial sales volume in 2021 is “whales” arriving; these are big equity firms with eyes on Southwest Florida and cash buyers.

And, as the numbers show, many of those buyers turned their attentions to retail properties.

“What occurred is the retail roundabout,” Thibaut says. “Again, people fled these assets. We were seeing buildings shuttered left and right. And they’re being reabsorbed, reopening in our market again, low cap rate deals out the wazoo, and more volume in this sector in 2021 that total sales volume in 2020. Crazy.”

One of the biggest drivers in the sector is the construction of car washes.

Thibaut says nine new car washes have been built in Southwest Florida in the past year and that another 20 or 30 might be in the works. While contributing to the strength of the market, car washes are not necessarily a good thing. That’s because they have very limited economic impact with just a few employees. “I’m not sure how long this anomaly will continue, but the point is they’re popping up left and right.”

Although the retail sales numbers are strong, construction in the sector is down when compared with industrial. There are 225,000 square feet of retail construction ongoing in Lee County, 130,000 square feet in Charlotte County and 95,000 square feet in Collier County. Those numbers are in the millions in the industrial sectors.

That’s largely because retail buyers are focused on transforming existing centers, Thibaut says.

He pointed to the Coralwood Shopping Center in Cape Coral and the Gulfcoast Town Center in Fort Myers as examples of the phenomenon.

Both centers lost JC Penney stores in the past couple years as the once-powerhouse retailer continued to cut its store footprint. At the Coralwood Center, the craft chain Hobby Lobby took the space. And at Gulfcoast, home decor retailer At Home stepped in.

“There’s a lot of sites welcoming new users, but they’re not new builds in our market.”

Thibaut also talked about the 500,000-square-foot Port Charlotte Town Center. The property was foreclosed on last year and taken back by the lender. Although it’s a traditional mall with big box anchors and tons of vacancies while suffering the fate of malls across the country, there is hope that it can be transformed.

The upside of the property, Thibaut says, is “this is 54 acres smack dab in the center of Charlotte County, which is experiencing a ton of growth.”

“This is an opportunity. This is an opportunity for revitalization. They’ve got to have their eyes on something cool for this market. We’re going to see this a lot with a lot of aging malls in our market in the next few years.”

Southwest Florida isn’t the only place where retail is strong.

In its fourth quarter market report released in March, Tampa commercial real estate firm Franklin Street says retail sales volume in Tampa Bay for the quarter was $490 million and topped $1.6 billion for 2021. That’s a 65% increase over 2020. This is driven, in part, by “more new-to-market concepts expressing interest in the area than ever before.”  

Not covered in Thibaut’s presentation or the Franklin Street report is why brick-and-mortar retail, despite obvious setbacks, remains strong.

Analyst say that notwithstanding predictions of its death, smart merchants have found ways that give customers a reason to get off the couch and come to the store. In some cases, it's as simple as offering in-store pick-up for online orders, and in others it’s opening a store with a niche that’s not replicated anywhere else.  

Although e-commerce, obviously, is a force that is here to stay, what’s happening in the brick-and-mortar sector is that retailers have found out that shoppers like the store experience and that if you can give them a reason to get off the couch and come to your store, they will come.

In Southwest Florida, deep-pocketed investors are betting money on that being true.

“What is certain in the retail world,” says Thibaut, “is that it’s the dominating force in our market.”